Page 252 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 12: Merchant Banking and Venture Capital

an upfront payment to the selected book-runners and lead managers for each issue Notes
considering the cost involved can ensure better response and quality rendering of services."
This fiscal, the lead managers for the SJVN Ltd issue were JM Financial, IDFC Capital, IDBI
Capital and SBI Capital Markets. Citibank, Deutsche Bank, DSP Merrill Lynch, Morgan
Stanley, Enam Securities and Kotak Securities have been appointed to act as book running
lead managers for the Coal India Limited IPO.
For EIL, the government has short-listed HSBC Holdings Plc, ICICI Securities, SBI Capital
Markets and IDFC Capital to manage the public offering. UBS AG, Kotak Mahindra Capital,
Enam Securities and IDBI Capital Market Services, Avendus Capital, Edelweiss Capital
and Centrum Broking also competed for EIL issue. Hindustan Copper Ltd, which would
view the bids after June 24, has obtained several bids, according to sources.
Source: http://www.thehindubusinessline.in

12.5 Venture Capital

Venture capital is a post-war phenomenon in the business world mainly developed as a sideline
activity of the rich in USA. The concept, thus, originated in USA in 1950s when the capital
magnets like Rockfeller Group financed the new technology companies. The concept became
popular during 1960's and 1970's when several private enterprises started financing highly risky
and highly rewarding projects. To denote the risk and adventure and some element of investment,
the generic term "Venture Capital" was developed. The American Research and Development
was formed as the first venture organization which financed over 100 companies and made
profit over 35 times its investment. Since then venture capital has grown' vastly in USA, UK,
Europe and Japan and has been an important contribution in the economic development of these
countries.
Of late, a new class of professional investors called venture capitalists has emerged whose
specialty is to combine risk capital with entrepreneurs management and to use advanced
technology to launch new products and companies in the market place.

Undoubtedly, it is the venture capitalists extraordinary skill and ability to assess and manage
enormous risks and extort from them tremendous returns that has attracted more entrants.
Innovative, hi-tech ideas are necessarily risky. Venture capital provides long-term start-up costs
to high risk and return projects. Typically, these projects have high mortality rates and therefore
are unattractive to risk averse bankers and private sector companies.

Venture capitalist finances innovation and ideas, which have potential for high growth but are
unproven. This makes it a high risk, high return investment. In addition to finance, venture
capitalists also provide value-added services and business and managerial support for realizing
the venture's net potential.

12.6 Meaning

Venture Capital has emerged as a new financial method of financing during the 20th century.
Venture capital is the capital provided by firms of professionals who invest alongside
management in young, rapidly growing or changing companies that have the potential for high
growth. Venture capital is a form of equity financing especially designed for funding high risk
and high reward projects.
There is a common perception that venture capital is a means of financing high technology
projects. However, venture capital is investment of long term finance made in:

LOVELY PROFESSIONAL UNIVERSITY 247